The landfall of foreign e-commerce giants arriving to Vietnam is not only a threat for traditional retailers but also an opportunity to streamline and improve their operation methods.

Local retailers see their future in the news from developed markets

The explosive power of e-commerce

The US has seen a series of retail store chains close and go bankrupt, including Toys “R” US, Walgreens, Gymboree, and Walmart, among others.

Most recently, Walgreens—the largest pharmaceutical store chain of the US—closed 600 stores due to the mushrooming e-commerce sites.

Despite selling at higher prices than other stores, Walgreens was a favourite of customers due to its convenient locations and attractive promotion programmes.

Vietnam’s e-commerce retail sales growth in 2016-20 is estimated at 20 per cent per year, and the country’s total retail e-commerce sales is expected to reach $10 billion by 2020.

However, Walgreens still stands behind Toys “R” Us in the number of stores closed.

Previously, Toys “R” Us, the iconic toys and games retail chain that ruled the market for generations, decided to either close or sell all of its stores in the US.

According to the firm, in the age of internet retailing, it has been struggling with an antiquated sales model that could not keep up with Amazon and Walmart, and was burdened by $5 billion in debt from a leveraged buyout in 2005.

Along with the above giants, numerous other retail chains in numerous sectors are either standing on the verge of bankruptcy or are narrowing their operations.

Notably, Walmart closed 63 stores of the Sam’s Club chain early this year. Besides, kid fashion retailer Gymborree plans to close 350 stores and Target will close 12 supermarkets, while Children’s Place will close 144 stores.

The list of closed store chains will be extended by names like GAP, Kmart, Michel Kors, and Best Buy.

Along with the existing advantages, e-commerce giants keep increasing their strength via investments in technology to simplify payments. Notably, along with online trading, Amazon has opened its first Amazon Go convenience stores. Goods at these stores are connected with touch sensors, thus customers can take goods from the shelves and leave the store with them, while the price of the goods will be automatically deducted from their account.

By the way, customers will save a lot of time on payments, as they only need to install the Amazon Go application and share their personal information at the entrance.

The traditional retailers shoring up defences

The sweeping success of e-commerce giants around the globe and the US raised concerns among traditional retailers in Vietnam in case these e-commerce giants officially enter the country.

Bracing themselves for the storm, numerous traditional retailers have started building e-commerce sites. Notably, Central Group, the owner of the Nguyen Kim electronic store chain, completed the purchase of Zalora in Thailand and Vietnam from Rocket Internet.

Besides, Aeon launched AeonEshop with the main profile of selling goods made in Japan, while Lotte Mart came out with Lotteshop and Lotte.vn and Vinmart with Adayroi.

In addition, Mobile World Investment Corporation (MWG), which currently holds 10 per cent of the e-commerce market, has built Vuivui.com. However, MWG only expects this site to produce profit from 2020.

E-commerce in Vietnam keep far gap with the global e-commerce

It is necessary to recognise that the local e-commerce retail sector is 15 years behind the global e-commerce retail industry. While foreign retailers are focusing on e-commerce, the local retail sector is still building out retail store chains via M&A deals.

According to information published by Thenextweb, the global e-commerce sector saw heated competition between giants like Alibaba, Amazon, Walmart, Otto, and JD. Most recently, Chinese e-commerce giant Alibaba finally overtook Amazon in the race for e-commerce supremacy.

Meanwhile, local retailers have increased to acqusitions and the expansion of their retail store chains. Notably, after acquiring Chau Long pharmaceutical store chain, FPT Retail expects to open an additional 400 stores in the next four years.

Besides, in December last year, MWG officially acquired 14-store chain Phuc An Khang Pharmacy to officially set foot in the pharmaceutical sector. The deal is part of the medium- and long-term development plan of MWG.

The gap between the Vietnamese retail sector and the global and Southeast Asian markets can be seen in the average rate of non-cash transactions, which is far lower in Vietnam than in other regional markets. Notably, according to statistics from the World Bank, the average rate of non-cash transactions in Vietnam is 4.9 per cent, while the rate is 59.7 in Thailand and 89 per cent in Malaysia.

Furthermore, more advanced payment options, including iris scanning, facial recognition, and fingerprint verification have appeared in countries in Southeast Asia, while these methods are still unfamiliar for Vietnamese people.

E-commerce in Vietnam is already growing very fast, but that is because it is only taking off, which can be seen in smaller revenues compared to more established markets. Notably, China expects to acquire $584 million in revenue from e-commerce this year, the US $474.35 million, and Japan $105.1 million, while the figure expected in Vietnam is $69.78 million only.

In addition, most Vietnamese e-commerce websites provide only basic services, only offering product information and a handful of new modes of payment without investing in other services, such as digital marketing optimisation and connecting online and offline sales.

According to Dinh Thi My Loan, chairman of the Association of Vietnam Retailers, that local retailers have increased expansion activities as well as started improving service quality to enhance their competitive capacity, however, there remain concerns about the impact of e-commerce giants entering Vietnam.

The retail market and particularly the e-commerce sector in particular in Vietnam are still only following behind global markets, thus, local retailers are seeing future market dynamics when looking at developments in the US and other markets, prompting them to prepare for the entrance of e-commerce giants.